The economic downturn brought an end to the double digit growth the property market experienced over the past few years. While it might not be as easy to make a quick buck as a few years ago, buying a property is still a good long-term investment. Investing in property, like investing in shares, is the best way to make sure your money beats the eroding effect of inflation in the long run.

It is important to note that when you rent out a property to a tenant, the Receiver of Revenue will consider the rent received as income and it will be included as “gross income” on your tax form. Gross income is usually a basic form of income like a salary. Do not omit your rental income from your tax form – the taxman can easily pick up undeclared rental income by contacting the deeds office.

On the positive side, you will be allowed to deduct expenses incurred in order to generate rental income from the amount you receive as income. This will include expenses like water and electricity (if you pay the bill), rates and taxes, insurance, agent fees, body corporate levies and certain household expenses. It might be a good idea to stipulate these expenses in the rental contract as this will indicate the expenses were incurred as part of the lease. Always keep invoices and statements in a safe place – the South African Revenue Service require that you keep these records for five years.

While the taxman considers repairs to your investment property as tax deductible expenses, improvements are considered of a capital nature and will therefore not be tax deductible. The general rule is that if the expense is incurred to restore the property to its original condition, it will be tax deductible. Expenses incurred to upgrade your home, will not be deductible.

Something that you might not be aware of is that if your investment property is covered by a bond, your interest payments to the bank will also be tax deductible. The capital part of your payment may not be subtracted though. Your bank will be able to supply you with an amortisation table that will indicate which part of your installment is interest on the bond.

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

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Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

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Tips on getting that home loan with which you can buy your own home

Even though property prices have soared in recent years, you can probably still obtain a home loan to buy your own home if you are earning a regular salary. Here are some ways that you can get that home loan you need to become a home owner without needing an excessively high income.

You do not have to take your home loan over a 20-year period but you could stretch it over a 30-year period. This will cause your monthly repayments on the home loan to be lower which will allow you to afford a higher loan amount. On the negative side this kind of home loan will cost you more over the long run in the form of the interest you will pay. You can use our Bond Calculator to calculate and compare the home loan amounts you can afford over a 20-year period and a 30-year period.

If you cant afford a home loan on your own salary consider buying a home with a partner. Instead of looking at your personal income as a measure for calculating an amount you can afford on a home loan, banks will look at the joint gross income of the two partners buying property together. If your gross income is R4000 and that of the partner is R8000 the bank will calculate the amount that you jointly qualify for on the combined R12000 income. The bank usually will not give a home loan on more than 30% of the gross income so jointly you should be able to get a loan for R400000. If you decide to take this option make sure that you sign a legal agreement with the partner on the amount each will pay on the repayments of the home loan and how the proceeds should be spilt when the home is sold in the future.

A common mistake prospective home buyers make, especially first time buyers, are that of aiming to high. Only for a hand full of people will their first home be their dream home. It helps to get into the property market first with a lower value home and after a few years, with the increase in value of your property and promotions in your job, you will be able to afford a better home.

Keep an eye out for special deals offered on home loans by the various banks in South Africa. There are good home loan products specially designed for first time home buyers who do not have huge incomes or cash on hand to pay deposits on the home loans. Always try and negotiate with the bank on a better interest rate as even a small decrease on your interest rate can make quite a large difference on your monthly repayments. For a family on a tight budget even a R100 less per month spend on your bond can make a big difference.

You can often bargain with a home seller to get the price down to something that you are more able to afford so do not just accept the first offer as something you cannot afford. Also keep in mind that many of the cheaper properties are not always advertised so drive around in your area and look out for the “For Sale” signs in front of houses. Do this especially on sundays as this is the day most sellers choose to place their homes on show.